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Our Top 4 EOFY Financial Planning Actions!

Article By Adam Hurwood | | Financial Planning
Every year around this time, a window of opportunity opens to help maximise your end of financial year tax strategies. So what are some of the strategies you might want to consider?

1. Manage your before-tax contributions caps

What’s the goal?

Maximising your super contributions.

How does it work?

There are limits on how much you can contribute to super tax-effectively each financial year. These limits (referred to as ‘caps’) are important for two reasons:

1) If you’ve already commenced a super contribution strategy, you need to monitor your contribution levels to help maximise your opportunities without unintended penalties.

2) If you’re not using your caps, there’s an opportunity to increase your super contributions.

The following table shows what the two types of super contributions are, and what limits and penalties relate to each.

What are your contributions caps?

2. Start a salary sacrifice arrangement (using before-tax contributions)

What’s the goal?

Boosting your super balance in a tax effective manner.

How does it work?

You may be able to enter into a salary sacrifice arrangement with your employer, provided you have room in your concessional contributions cap. This may allow you to contribute some of your before-tax salary directly into your super account.

The benefit of this strategy is that your before-tax super contributions are taxed at 15% – compared to your marginal tax rate of up to 46.5% (including Medicare Levy) if you took this money as cash.

An added benefit is that these potential savings are going towards your super balance, so they can compound over time and make a significant difference to your retirement savings.

Salary sacrifice arrangements differ depending on your place of work, and you may need to check what rules are in place for you. It’s a good idea to have this conversation with your employer well before 30 June as you can’t salary sacrifice income (including year-end bonuses and commission payments) to which you are already entitled – it must relate to employment income that you will earn in the future.

Remember, if you have a salary sacrifice arrangement in place, it’s important to review the strategy annually to ensure it remains appropriate for your circumstances and takes into account any changes in legislation.

3. Prepay investment loan interest

What’s the goal?

Increasing your potential tax deductions this financial year.

How does it work?

When you borrow money to make an investment that will generate assessable income (often called ‘gearing’), you’re generally entitled to claim a tax deduction for the interest on the money borrowed.

The interest you pay is generally tax-deductible in the year it falls due. However, if you have a geared investment portfolio in your own name, you may be able to prepay up to 12 months’ interest on the loan and bring forward a tax deduction from the following year into the current year – potentially reducing your taxable income this financial year.

Additionally, by prepaying interest you are locking in the interest rate you pay for the following year, which gives you greater certainty around the cost of your investment. Some lenders also offer a discounted rate when you prepay interest.

It’s important to remember that to receive these benefits, you need to make the prepayment before the end of the financial year. Furthermore, once the payment is made, you cannot ‘claw back’ any interest payments if the account is closed or repaid.

4. Know where you stand before 30 June

The best year-end tax strategies for you depend on your personal circumstances and goals – which may change from year to year. Likewise, the strategies can vary over time with changes to rules and regulations.

To make sure you know where you stand before 30 June, speak with your Altitude Adviser as soon as possible.

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